Question

Three families went out to dinner together for a soccer team celebration. They asked for separate checks, but the weather was unable to do so...

Ch. 17 Activity Based Costing Three families went out to dinner together for a soccer team celebration. They asked for separate checks, but the water was unable to do so. When they received the bill, they weren't sure what was the best way to divide up the costs. Someone suggested that they simply divide the bill by the number of people to get a cost per person. Someone else suggested that they take the total bill and divide by the number of families. Luckily, one of the parents was a CPA and determined that it would be most accurate to use something similar to an Activity Based Costing situation. Required: 1. Allocate the bill based on the number of families. 12 2. Allocate the bill based on the number of people at the table. 3. Allocate the bill based on the different cost drivers. (See additional data.) 14 15

Answer 1

Allocate the bill based on the number of families
		Jones Family	Carter Family	Smith Family	Total
Total bill	236.84	78.94666667	78.94666667	78.94666667	236.84
	As the number of families are 3, bill was equally divided.
Allocate bill based on number of People		Jones Family	Carter Family	Smith Family	Total
Total bill	236.84	118.42	67.66857143	50.75142857	236.84
Total Number of people	14	7	4	3	14
	Bill amount per person is $16.9171 allocated to each family according to the number of family members.
Cost Per Person	16.917
Cost Assigned		118.42	67.66857143	50.75142857	236.84
Allocate the bill based on the different Cost Drivers
		Jones Family	Carter Family	Smith Family	Total
Dinner Bill Details	Cost
Pizza	95.00
Number of people who ate Pizza	11	4	4	3	11
Cost per person (95/11)	8.64
Pizza Cost Assigned	95.00	34.55	34.55	25.91	95.00
Beer	42.00
Number of people who drank Beer	5.00	0	2	3	5
Cost per person	8.40
Beer Cost Assigned	42.00	-	16.80	25.20	42.00
Appetizers	36
Number of people who ate appetizers	7	3	4	0	7
Cost per person	5.1429
Appetizers Cost Assigned	36	15.43	20.57	-	36.00
Dessert	18
Number of people who ate dessert	3	1	0	2	3
Cost per person	6
Dessert Cost Assigned	18	6.00	-	12.00	18.00
Sub Total	191.00	55.97	71.92	63.11	191.00
Sales tax @ 9% of sub total	17.19	5.04	6.47	5.68	17.19
Tip @ 15% of sub total	28.65	8.40	10.79	9.47	28.65
Total For Each Family	236.84	69.41	89.18	78.26

Answers to the Questions
1	Allocation based on cost drivers
	As the cost allocated to jones family is less (69.41) when the allocation is done using cost drivers.(Refer the summary of cost allocation below)
2	Allocation based on number of People
	As the cost allocated to Carter family is less (67.67) when the allocation is done using number of person as the criterion.(Refer the summary of cost allocation below)
3	Allocation based on number of People
	As the cost allocated to Smith family is less (50.75) when the allocation is done using number of person as the criterion.(Refer the summary of cost allocation below)
4	Number of people ate appetizers was the cost driver.The cost of appetizers are divided by the number of people who ate appetizers and the rate arrived is multiplied with the number of people who ate the appetizers in each family.
5	The tip was allocated based on the sub total arrived after the allocation of all costs.The sub total was base of allocation of tip.
6	The most efficient method to allocate cost is using cost drivers as the basis of cost allocation.

Cost under different methods of costing
Particulars	Number of family	No. of people	Cost Drivers
Jones Family	78.95	118.42	69.41
Carter Family	78.95	67.67	89.18
Smith Family	78.95	50.75	78.26